General Registration and Account Rules

The whole unit on one sheet: who must register, what a firm owes a customer before trading, and how reporting differs from a hard position cap.

Who Are the Two Regulators, and Who Must Register?

• The CFTC is the federal regulator operating under the Commodity Exchange Act (CEA); the NFA is the industry self-regulatory organization (SRO) that grants membership and writes the conduct rules. The CFTC registers, the NFA admits and disciplines, and a public-facing firm needs both.
• Seven registration categories split into firm and individual roles. Firms: the Futures Commission Merchant (FCM) solicits orders and holds customer funds; the Introducing Broker (IB) solicits orders but never holds funds, which go to a carrying FCM; the Commodity Pool Operator (CPO) runs a pool that combines investor money; the Commodity Trading Advisor (CTA) advises others for compensation.
• Individuals: the Associated Person (AP) is anyone who solicits orders, customers, or funds, or supervises those who do; the Floor Broker executes trades for others; the Floor Trader trades its own account.
• The money test drives the next unit's capital rules: only the FCM holds customer money.

When Is a CTA Exempt From Registration?

• A person is generally exempt from CTA registration if, in the preceding 12 months, it advised no more than 15 persons and did not hold itself out to the public as a CTA. Both prongs must hold at once; crossing either one loses the exemption.

What Is the Just and Equitable Principles Standard?

• Every NFA Member and Associate must observe high standards of commercial honor and just and equitable principles of trade, a broad fair-dealing catch-all that reaches dishonest or self-dealing conduct even when no narrower rule names it, such as trading ahead of a customer's order or skipping diligence for a favorable execution.

What Must Happen Before a Customer's First Trade?

• Know Your Customer (KYC): the firm must gather basic financial background and ensure risk disclosure at or before account opening. This is a disclosure duty, not a suitability veto like the securities exams test.
• The prescribed risk-disclosure statement must be furnished essentially verbatim, with only nonsubstantive additions such as captions allowed, and the firm must obtain a signed, dated acknowledgment before the account opens and before any trading. It warns the customer can lose more than the amount deposited.
• The account-opening package is KYC, the signed risk disclosure, and the commodity customer agreement.
• A discretionary account needs written authorization, a power of attorney or equivalent, plus firm supervision and review. Narrow time-and-price discretion on a trade the customer already decided to place is the one exception that needs no written authority. An associated person needs at least two years of continuous registration, working in that capacity, before exercising discretion.

How Do Reporting and Speculative Limits Differ?

Which Numbers Matter Most?

Which Gotchas Trip Students Up?

• Know Your Customer is not a suitability bar. It requires gathering information and disclosing risk, not rejecting an unsuitable customer.
• The risk disclosure must be verbatim and delivered before the account opens, never softened or given after trading starts.
• The CTA exemption needs both the 15-person cap and no public marketing; meeting only one prong loses it.
• Time-and-price discretion does not need written trading authority; full discretion always does.
• A reportable level is a threshold, not a ceiling; a speculative limit is a ceiling, not a mere reporting trigger.

One-Breath Recap

The Commodity Futures Trading Commission registers seven categories of futures participant, and the National Futures Association grants membership and polices conduct, so a public-facing firm needs both; the money test separates the Futures Commission Merchant, which holds customer funds, from the Introducing Broker, which does not; a Commodity Trading Advisor escapes registration only by advising fifteen or fewer persons in twelve months while never marketing to the public; before a customer's first trade, the firm must know the customer, deliver the risk disclosure verbatim, and paper a discretionary account with written authorization, supervision, and an associated person's two years of experience; position reporting catches speculators and hedgers alike, while a speculative limit is a hard cap that only a bona-fide hedge exemption relieves.

Need more than the recap? Read the full General Registration and Account Rules unit.